SM Entertainment has agreed to give Kakao Entertainment, a subsidiary of technology firm Kakao Corp., exclusive rights to circulate its albums and music as part of its alliance with the tech giant against rival K-pop company Hybe's takeover bid, music industry sources and investment banks said Thursday.

They said the transfer of rights was included in a contract Kakao signed earlier this month to buy a 9.05 percent stake in SM through a rights offering and convertible shares and become a strategic partner of SM.

Under the deal, SM will grant Kakao Entertainment exclusive rights to distribute Korean albums and music sources and will cooperate to distribute overseas albums and music through the company, according to the sources.

Currently, Dreamus Co., of which SM owns part of the shares, is in charge of distributing albums and music of K-pop artists such as Ive, Monsta X, IU, STAYC.

SM has also reportedly agreed to cooperate to distribute tickets for domestic concerts and meet-and-greet events for fans of SM-managed artists through Kakao Entertainment.

Since the tech giant will operate Seoul Arena, under construction in northern Seoul to become the country's first and largest arena dedicated to staging K-pop performances, it is expected to become a major venue for SM artists' performances if Kakao's acquisition of the stake in SM is made.

SM and Kakao Entertainment also reportedly agreed to establish a joint venture company that will hold a joint global audition to create new K-pop groups.

The two companies are known to have special interest in American markets, the world's largest and where the rival Hybe has established a solid distribution network backed by the global success of K-pop superstar BTS.

Hybe is now the largest shareholder of SM as it completed its acquisition of a 14.8 percent stake in the K-pop agency from its founder Lee Soo-man on Wednesday despite SM's criticism of the purchase as a hostile merger and acquisition to control the firm.

Hybe's total stake could increase to almost 40 percent when it purchases a further 25 percent of SM shares from other investors as planned. (Yonhap)